Pro Farmer: Pork bellies may disappoint hog market bulls

For a long time, when I told people that I was a futures market analyst, I was routinely asked, "What's a pork belly?" Of course, I explained that a pork belly is a side of bacon; it's been trimmed to a flat slab about 12 inches wide and 18-24 inches long, thereby readying it for cutting into smaller pieces for resale and/or into slices of bacon. Although I realize that advances made by both pork packers and grocers rendered it obsolete. Still, I miss the pork belly futures market despite the fact that the sharks in the CME pork belly pit never gave anyone an even break, which helped kill the goose that laid golden eggs for them.

Ultimately, belly futures served the very good function of fostering storage of frozen bellies during fall, when the market was glutted and prices were in the tank, so those same supplies could be used to supplement production the following summer, when the belly situation routinely became quite tight. And while pork belly futures are now a fading memory, those in the ag industry should be aware of the wholesale bacon market's influence over the hog and pork complex during summer.

That is, if spring-summer pork belly supplies fall short of consumer demand, the resulting price rally can give the hog market a major boost during mid-to-late summer. Conversely, an oversupplied belly market can weigh heavily upon the hog and pork complex as Labor Day looms. Moreover, the behavior of wholesale bacon prices during the first half of the year can greatly influence market action during summer. The price action of the past two years, as illustrated by the preceding chart perfectly illustrates this point.

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